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Also, one in six will retire in 2015 with expected income below the minimum income standard for a single pensioner
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A retired couple reliant on the State Pension alone will get by just above the ‘poverty line’
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The State Pension will make up 36 per cent of Class of 2015’s average expected retirement income
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Women are more than twice as likely as men to retire with only the State Pension as a source of income in retirement
In its eighth annual ‘Class of’ study, tracking the future plans and aspirations of people who plan to retire this year, the insurer also found that one in six (16 per cent) of the ‘Class of 2015’ will be retiring with expected incomes below the Joseph Rowntree Foundation’s (JRF)2 minimum income standard for an adequate standard of living for a single pensioner of £9,500. A single pensioner exclusively relying on the full State Pension of £115.95 a week has a total annual income of just over £6,000 – well below the JRF standard.
A retired couple both qualifying for the full State Pension receiving a combined income of £231.90 a week, but with no further pension income, are getting by just above the ‘poverty line’. The most common measure of the poverty line is 60 per cent of the median household income, and based on this assumption the Department of Work and Pensions3 calculates the household poverty line (after housing costs) to be an income of £224 a week.
Prudential’s research also highlights the importance of the State Pension to all people planning to retire this year – even those who have other forms of pension savings. On average the State Pension will provide 36 per cent of a 2015 retiree’s income. However, despite the important role it will play in providing their future income, a significant proportion of the ‘Class of 2015’ are unsure what the State Pension is actually worth – almost two in five (37 per cent) think it is worth more than its current value and a further eight per cent admit to having no idea what it is worth.
Vince Smith-Hughes, retirement income expert at Prudential, said:
“The reforms to the ways that people can use their pension savings, that came into effect in early April, present retirees with many new choices. However, only those with their own pension savings will be able to benefit from the new choices, while people who rely solely on the State Pension are likely to have to face serious financial belt-tightening when they give up work.
“For many people reaching the retirement milestone this year, their income will come from a number of sources. Our research shows that the State Pension will make up a significant proportion of income for most people – but it is important not to overestimate its value. To secure a comfortable retirement income the best approach remains to save as much as possible as early as possible during your working life.
“With all the options now open to pensioners, a consultation with a professional financial adviser could help to avoid making decisions that might have an unwanted financial knock-on effect in later life. Retirees should also remember the guidance which is available from the newly created Pension Wise service, which can help them to understand their choices.”
Women are more than twice as likely to have to rely on the State Pension or other savings – 21 per cent of women say they have no pension savings compared with nine per cent of men. Women anticipate the State Pension will account for 41 per cent of their expected retirement incomes compared with 31 per cent for men.
Those expecting to retire this year in the East and North West of England are the most likely to have to rely on the State Pension or other savings – 19 per cent and 18 per cent respectively have no other pension. By contrast, those in Yorkshire and the Humber will be the least reliant on the State, with just 11 per cent entering retirement without any pension savings.
Of those that do have a pension and will not be relying solely on the State Pension, 56 per cent have a final salary scheme as their main pension compared with 44 per cent who have variants of Defined Contribution as their main pension scheme.
Despite the large number of people retiring with no pension, 54 per cent of this year’s retirees feel financially well prepared for retirement, up from 47 per cent in 2014. However, women (50 per cent) are less likely to feel well-prepared than men (59 per cent).
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